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source: Bkk Post/CBRE June 23 2008
The condominium market in Thailand has changed significantly since its
inception. Following the speculative boom of the late 1980s and early 1990s, the
new wave of development that began in the early 2000s is of a much better
quality and focused on end-user needs. A number of landmark developments have
been built over the past two decades, and land prices are now heavily influenced
by the mass-transit lines.
The first condominium law was enacted in 1979, and Siam Penthouse, completed in
1981, was the first condominium in Thailand. During this period, most units were
sold on a bare-shell basis, without interior decoration or kitchens.
Post-tension construction was primarily used, resulting in low ceiling heights
(below 2.5 metres), and some units even had columns in the middle of the room.
In the early to mid-1990s, Thailand became one of the world's fastest growing
economies (part of what was dubbed the Asian Miracle). Foreign ownership of
condominiums was approved in 1992, adding to the growing demand. Seemingly
overnight, we saw rapid change that increased the income and confidence of local
developers. We now know that this rapid development and financial risk-taking
led to over-expansion and speculation in property by developers and purchasers.
In 1995, we began to notice signs of oversupply, and sales rates slowed in many
projects. This climaxed in 1997 when the Asian financial crisis engulfed the
region and financing of many projects stopped abruptly. At end-1999, CBRE
Research Services found approximately 40 condo projects suspended. Only 25
projects were completed between 1998 and 2002.
The condo market suffered from stagnation, weak demand and limited transactions.
More than 40% of downtown condominium units were vacant in 1998, and developers
were forced to clear unsold inventory at discounted prices. In 1999, Raimon Land
sold 100 units in Raintree Villa as part of its debt restructuring, while other
developers sold units through auctions, often at discounts of more than 30%.
However, in some quality projects in prime locations, such as Somkid Gardens,
there were resales of units at 85-90% of the original value.
In the early 1990s, most Thai buyers were speculators hoping to resell at a
profit before completion. In the early 2000s, we saw a significant change with
Thai buyers purchasing to occupy because of convenience and location. Rising oil
prices, which make commuting more expensive, and the convenience of the BTS and
MRT, contributed to this trend. Many projects with more affordable units emerged
along mass-transit lines in the midtown area.
Renewed demand for condominiums was fuelled by stronger purchasing power and
pent-up demand. Developers began to build anew and also restarted some suspended
developments. In early 2001, L.P.N. launched Lumpini Place Sathorn, a mid-range
development, while we consider the launch of Hampton Thonglor 10 by Major
Development as the return of demand for the luxury segment. By the end of 2004,
approximately 50 projects with 6,500 units had been launched in the downtown
area.
One significant development was the emergence of units designed specifically for
the growing middle class, which meant a greater variety of designs, sizes and
price ranges than before. The quality and sophistication of units improved, with
many projects offering fully fitted units. More buyers began to buy condos as
end-users during this period.
You may see that luxury developments now provide higher quality and more
extensive features, both within and without the unit. Location has become
critical to success, with an emphasis on proximity to mass-transit lines.
Condominiums have shifted from commodity products to a reflection of image and
lifestyle, and some projects are now being integrated with branded hotels.
Foreign purchasers have increased despite restrictions such as the 49% limit on
foreign ownership and the requirement to bring in funds from overseas. Many
foreigners are buying with the intention of living in the property for at least
part of the year because Bangkok offers a high standard of living at a much
lower cost than other European and Asian capitals.
As Bangkok's population increases, I believe condominiums will continue to grow
in popularity. CBD land is already scarce and high-rises provide more efficient
land use and lower costs per square metre. We foresee the refurbishment of older
buildings as prices in many are below replacement costs and already have
maximised plot ratios.
The mass-transit lines have anchored the city centre. Outside the CBD,
developments will be clustered around mass-transit stations. Prices will
increase along with construction costs, higher quality standards and better
offerings, but Bangkok should remain competitively priced when compared to
regional metropolitan areas.
Many people have asked me how the current situation compares to that of a decade
ago, and I believe there are considerable differences. Before the crisis, we saw
a slowdown in both sales and prices; however, we are now still seeing price
increases in most segments, including resales of existing projects.
Many buyers now purchase condominiums as a long-term investment, and speculation
is much more limited. Additionally, debt levels have been well managed at most
projects, so I don't think there is any need to panic yet.
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